LOS ANGELES (The Hollywood Reporter) — The Walt Disney Co. must pay “Roger Rabbit” creator Gary Wolf at least $180,000 in underreported royalties, but the company prevailed on the larger issue of whether gross receipts must include the value of promotional deals.
The 15-week jury trial in Los Angeles Superior Court could leave Wolf with as much as $400,000 in damages but not the $8 million he had sought by claiming that his 5% royalty extended to the noncash value of promotional tie-ins with McDonald’s and other outlets.
The case was closely watched in the entertainment industry because it could have profoundly altered the traditional notion that noncash promotional deals do not count toward gross receipts.
Attorneys in the case declined comment on the verdict, which was returned late June 27.
Before the trial, attorneys for Disney, led by Marty Katz of Sheppard, Mullin, Richter & Hampton, had turned back another claim that could have proved even more precedent-setting: that Disney owed Wolf a “fiduciary duty” over the reporting and payment of royalties, which could have made Disney liable for punitive damages in addition to any alleged underpayment.
A separate appeals court ruling allowed Wolf to go to trial over the contractual definition of “gross receipts” and its reference to both cash paid to Disney and “all other considerations.” Wolf believed the latter included the cross-promotion deals worth at least $100 million.
Wolf created Roger Rabbit and related characters in a 1981 novel and then licensed the merchandising, motion picture/television and other rights to Disney two years later. The novel was turned into the hit 1988 film “Who Framed Roger Rabbit,” which won four Academy Awards and has grossed $330 million worldwide.
The agreement was modified in 1989 after a dispute over auditing rights, the use of the characters at theme parks and other issues.
As the trial got under way in March, Wolf’s attorneys, including J. Larson Jaenicke and Michael Garfinkel of Rintala Smoot Jaenicke & Rees, also claimed that Disney underreported “Roger Rabbit”-related sales made by Disney and certain third parties. Jaenicke told jurors that the trial was about “self-serving, catch-me-if-you-can Hollywood accounting.”
Disney, in turn, said it had committed an accounting error by overpaying Wolf an estimated $500,000-$1 million, which the company wanted back.
In the end, the jury found in favor of Disney’s interpretation of gross receipts as meaning monies and things that are converted to money.
The plaintiffs hoped to take a second stab at the issue by claiming a breach of implied covenant of good faith and fair dealing, where even if Disney hadn’t technically violated the agreement, it had violated the spirit of it. The judge dismissed that claim, a move the plaintiffs now plan to appeal.
The court separately dismissed Wolf’s claim that he be paid a 5% royalty when his character was licensed to a manufacturer and again on the retail sales of those products at Disney’s parks and stores. The court said Wolf was entitled to only one payment, that involving the original license.
On the accounting claims, which involved nearly $50 million in transactions, Wolf won $180,000 plus another potential $220,000 that was withheld by Disney because of its alleged overpayment.